The Town Council adopted a resolution this month officially opposing any borrowing of local funds to balance the state budget, and has sworn to do whatever it takes to protect local revenue.

If Gov. Arnold Schwarzenegger declares a "severe state of fiscal hardship" the state can borrow money from city property taxes and transportation funds as long as they are repaid in three years with interest, according to Proposition 1A.

But there is a third source of local money that could be tapped into that is not protected by Prop 1A, which Calabrigo said could be even more harmful to the town.

The state may shift a portion of redevelopment funds away from local projects and toward its expenses. These would not have to be paid back and the shift would happen annually for the remaining life of the redevelopment agency, said Calabrigo, which in Danville is until 2036.

A chunk of the funds, about 4 percent he estimated, would be shifted each year. This means the dollar amount would increase over time due to inflation. This fiscal year about $86,000 would be shifted away from redevelopment funds. By 2036 the total amount would be upwards of $3 million, said Calabrigo.

"It's a lot of money and it's permanent and it doesn't get paid back," he said. It's also problematic because the funds are already committed.

The redevelopment agency borrows money for improvement projects like the parking lots downtown, senior housing and a portion of the Danville Library and Community Center. If money is taken out of the redevelopment fund, the town would have to tap into the general fund to pay off those debts.

"The state doesn't care," said Calabrigo.

The state has periodically borrowed local revenues since 1991 and already owes Danville $8.7 million, according to the League of California Cities' watchdog Web site, www.cutupthecard.com.

This year the state would take in total revenues of about $2.9 billion from cities, counties and special districts, Calabrigo said. About $2.1 billion of that would come from property tax; $570,000 from Prop 42 funds; and the rest from redevelopment funds.

Most cities have redevelopment agencies. Some towns in Contra Costa County with very large agencies and would take a major blow from an annual shift in funds: Pittsburg would lose about $2 million a year just to start, and Richmond more than $1 million a year, said Calabrigo.

While there's no telling if the state will resort to local borrowing, the forecast isn't promising, he said. The budget is nearly two months past due and legislators remain at a standstill.

"At this point both the governor and the senate pro tem have indicated that local funds are off limits," said Calabrigo. "But the reality is: Here we are, it's the middle of August, there's no budget in sight and they still have this huge gap they have to bridge. It just seems very unlikely that they're going to do that without trying to tamper in some fashion with local government revenues."